But health care costs vary even after accounting for differences in business expenses across regions, which has left many policymakers to suspect that overuse and misuse of health care services are behind the geographic health cost variations.

But the IOM included important caveats to its findings. Its statistical model could not explain a large amount of geographic health spending differences. The model included variables for health status, factors related to market differences, and health plans.

Yet there are likely many other variables – such as patient preferences or provider decisions – that were not in the model but could explain cost differences by region. That is a common problem of inferential statistics, called omitted variable bias. In this case, it means there could be factors as yet unaccounted for that are creating the appearance of a relationship between region and health spending where none exists. In other words, something other than location could be the culprit.

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The Piper Report blog on healthcare business and policy covers issues in Medicaid, Medicare, and the Affordable Care Act, with articles, interviews, resources, primers, book reviews, and more. Edited by Kip Piper, MA, FACHE.